Federal Realty Celebrates a Half-Century in Retail

By Katherine Boccaccio

As one of the oldest REITs in existence today, Federal Realty Investment Trust has every right to send up some fireworks over reaching the 50-year mark this year.

The Rockville, Md.-based real estate company was established in 1962 with three properties in the metropolitan Washington, D.C., area, including Congressional Plaza (shown here, both then and now). Today, Federal Realty’s portfolio comprises about 19.3 million sq. ft. primarily in its core base of the northeastern and Mid-Atlantic U.S., as well as in California.
Chain Store Age senior editor Katherine Field Boccaccio sat down with Chris Weilminster, Federal Realty’s senior VP leasing and a 22-year veteran of the company, to talk about the industry in general and about Federal Realty’s 50-year perspective on retail.

What are some overriding trends that you have noticed within the retailing industry, among large, chain retailers, as well as mom-and-pop stores?
Today, retailers are looking for more mature markets with proven success in which to place stores, as a means to mitigate risk. Retailers also are more flexible with their footprints, largely as a result of having to adapt to existing space. Top-line growth is more important to retailers, which means they are allocating more capital for expansion – this is a result of leaner G&A budgets and more efficient inventory control. Mom-and-pop stores – other than perhaps the quick-serve and other restaurant concepts – are finding it very challenging in an environment where internet sales are on the grow and both national and regional retailers are becoming more nimble. It’s harder than ever for mom-and-pops to make money.

How do retail concepts differ nationally and internationally? Where is most of the innovation coming from these days?
From American retailers, we aren’t seeing a lot of new concept innovation. Capital is being directed more toward making internet sales more efficient than toward concept innovation. On the international front, however, retailers such as Uniqlo and H&M are looking to grow, and are able to take products from the runway to the consumer in a mind-boggling six-to-eight-week timeframe. These retailers are looking to grow, and the U.S. is where they’re expanding. New York City, of course, is their jumping-off point, and then they are expanding domestically from there. As they figure out how to grow successfully in the U.S., it opens up a natural platform for growth. While this may not be an innovation per se, it illustrates where we can expect to see innovation, and that is from the international concepts that are coming to America.

Since 2008’s recession, has the nature of leasing changed?
By and large, retailers are more disciplined. They aren’t growing just for the sake of growth. And they are expanding intelligently, focusing on high-impact locations that drive sales. Real estate decision-making has become more sophisticated, and retailers aren’t falling into the trap of building where there is no residential density. They are picking core markets where their customers are already located. That’s what we have seen as a trend.

But, with that disciplined approach to growth, retailers are fighting for more control in terms of their leases, which is adding time to the whole process. The fact that retailers are more carefully examining leases and heavily negotiating the various points can significantly add to the time it takes from site selection to store opening. That’s tough on developers in suburban locations, but less of an issue for landlords in desirable locations in infill markets with proven sales performance. Because retailers truly do feel entitled to more control, developers simply must learn to be more creative and find solutions that are a win-win for both parties. Honestly, we have been doing this for a long time. But now everyone has to.

Over the last 22 years, how have your duties evolved?
Certainly from the time I joined the company as a junior leasing agent in my 20’s to today, my responsibilities have changed significantly. But more than that, Federal Realty has evolved, especially after 2008. Because relationships are part of our culture, in 2008 when the tidal wave of restructures and rent relief washed over the country, the company redirected many of the challenges that may have changed what I did – specifically the increased lease negotiations as retailers closed stores or sought rent relief -- to our asset management group. This allowed the leasing group to maintain the relationship building and maintenance, and prevented us from becoming the bad guys. We have tried to be very balanced in the good times and the bad so that we could maintain a consistent relationship with our retailers. Being proactive, not reactive, is what brings long-term success.

What is your priority when selecting tenants?
The goal is quite simple, to put the best collection of retailers together that best serves the needs of the surrounding community. Because the assets and communities vary so widely, the tenant types vary as well. Tenant selection is about knowing what the community wants and needs and then selecting the retailers that will best complement the existing tenant base, and who will bring in the most traffic in terms of sales and relevance.

During your tenure, what changes have you noticed, culturally, internally or in relation to FRT’s guiding principles?
From the day this company was founded 50 years ago as a public REIT, it has remained very consistent in that the focus has been on buying and operating the highest quality real estate in the country’s best markets. When I started 22 years ago, it was a smaller, intimate environment with significantly fewer assets, and today, as an $8 billion company, the challenge has been keeping those personal relationships intact as we have grown. We remain committed to marrying memorable place-making with our strong focus on financial discipline. Our message to Wall Street and our company are consistent, although we have grown and matured from a small company into a leader in the industry.

What has sustained FRT for 50 years?
Great leadership. And great assets. It’s all about those two simple things, plus realizing that to create value you don’t necessarily have to acquire assets. You need to recognize the value in your existing portfolio and maximize it through effective repositioning and strong operations. The move today for many in our industry is to refocus on maximizing the value of their assets, but, then, we’ve been doing that for decades.

As you look to the future, perhaps in the next 5 or 10 years, what do you see as far as FRT’s direction and growth?
More of the same. We will keep our message simple – keeping our focus on owning and operating the best retail assets while still doing some mixed-use with residential, office or hotel components that complement our retail ownership as those opportunities arise. Retail has been, and will remain, our core business, and we’ll remain focused on acquiring great retail assets in our core markets and enhancing their value. That focus is what got us here, and I don’t see that changing.